Retail property experience ‘will prevail in the long run’

Ralph Kemmler and John Schroder, at the conference on Tuesday, believe retail growth is sound.
Photo: Nic Walker

by
Tim Binsted

Lacklustre spending is compounding the damage to retail landlords caused by technology and consumer behaviour, but top industry players say shopping centres are here to stay.

Speaking at the AFR Commercial Property Conference on Tuesday,
Tom Southern
, the Australia and New Zealand chief executive of global real estate group CBRE, pointed out that total returns on retail property had slumped to multi-year lows.

But senior executives including Stockland commercial property CEO
John Schroder
, AMP Capital Shopping Centres managing director
Bryan Hynes
and Woolworths director of property
Ralph Kemmler
said growth was sound and it was impossible to generalise about the sector.

“There are a lot of different forces driving different markets. The growth we’ve experienced has been very satisfactory, but it’s all asset specific," Mr Schroder said.

Pressure on bricks-and-mortar retail tenants from online competitors is a powerful trend, and landlords are being forced to adapt. Mr Hynes said the pace of technological change was accelerating and retailers need to blend technology offerings with storefronts.

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“Sixty-eight per cent of people in this country have a smartphone. The way we communicate with customers will change a lot in five years," he said.

The multi-option strategy Mr Kemmel favours is a case in point. To date, 2.8 million customers have downloaded the Woolworths app, which is used in creating lists and locating products by aisle. “The customer has access to information like never before. There’s no doubt that focusing on the customer is important," he said.

Although the changes are rapid, the shift to online remains in its infancy. On Mr Schroder’s numbers, online spending makes up about 6 per cent of the $232 billion in retail spending, increasing to a 14 per cent over the next decade.

Pressure from online and weak retail spending have raised questions about support for rents, but centres exposed to strong population growth and an undersupply of space are tipped to endure. As things stand, fundamentals remain sound.

Mr Hynes pointed to the $872 million AMP attracted from the Canada Pension Plan Investment Board and Abu Dhabi Investment Authority last year to fund redevelopment of the Macquarie and Pacific Fair centres. He expects an 8 per cent yield on those projects.

A shifting tenant mix was also flagged. Mr Schroder said dentists and medical centres are becoming regular features in centres, presenting a new flow of rents from tenants outside traditional retail sales measures.